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Mr. Schneiderman Presents His Case

If New York’s attorney general, Eric Schneiderman, cannot bring banks and bankers to justice for the mortgage debacle, it won’t be for lack of trying. It will be for lack of resources and political will that only federal partners can provide, including the Justice Department, the Internal Revenue Service, the Securities and Exchange Commission and, most important, President Obama.

Mr. Schneiderman’s civil suit against a unit of JPMorgan Chase, filed this week in New York State Supreme Court, contains familiar allegations in a new legal package. It revolves around Bear Stearns & Company, the failing investment bank acquired by JPMorgan Chase in a government-brokered fire sale in 2008, and contends that, from 2005 through 2007, Bear Stearns systematically defrauded investors who bought mortgage securities packaged by the investment bank and its mortgage-lending unit.

The crux of the complaint is the willful failure of Bear Stearns to assess the quality of the loans it was packaging into securities, though it assured investors it was performing stringent due diligence. And even as the loans began to default en masse, Bear Stearns allegedly did not require the loan originators to buy them back, as it should have to reimburse investors. Instead, it demanded cash payments from the lenders and pocketed the money.

Unlike other cases brought by federal regulators that focused on particular transactions, the Schneiderman lawsuit alleges a broad pattern of fraud and misrepresentation. That broad scope presents an opportunity not only to punish wrongdoing at one bank, but to apply the methods and findings of the case to other banks.

Another contrast is that mortgage fraud cases, to date, have tended to settle quickly. In this case, JPMorgan has said it would contest the allegations. That creates the potential to unearth more evidence of wrongdoing, increasing the possibility that the case could be used as a template for further cases.

It also holds out the possibility of criminal charges, assuming that fact-finding in the civil case leads to evidence of crimes. The Schneiderman case does not name any individuals, and the time for pursuing criminal charges under state law is running short. But federal prosecutors have greater leeway to pursue such charges.

So where are the feds? If systemic fraud is alleged under New York law, why aren’t there parallel federal charges, civil and criminal, for violations of banking, tax and securities laws? Clearly, unless there is a pathway to criminal prosecution even a successful civil suit is likely to leave the impression that justice has not been done.

Mr. Schneiderman is pursuing his case under New York’s Martin Act, a powerful tool that does not require the attorney general to demonstrate that the defendant intended to defraud.

But unless and until federal prosecutors and regulators are willing to follow up Mr. Schneiderman’s actions with broad suits based on violation of federal laws, the full range of potential wrongdoing by banks will go unaddressed. And the rule of law, as well as the opportunity for redress, will suffer irreparable harm.

A version of this editorial appears in print on October 3, 2012, on page A26 of the New York edition with the headline: Mr. Schneiderman Presents His Case. Today's Paper|Subscribe